Impact of the COVID-19 Pandemic on China's Stock Market Volatility, During and After the Outbreak: Evidence From an ARDL Approach

Abstract

PurposeIn this study, we empirically investigate the impact of the COVID-19 pandemic on China's stock price volatility during and after its initial outbreak, using time-series daily data covering the period from July to October, 2020 and 2021, respectively.Design/Methodology/ApproachIn the estimation, the ARDL bounds test approach was employed to examine the existence of co-integration and the relationship of long-run and short-run between the new infection rates and stock price volatility, as stable and unstable variables are mixed. The inner-day and inter-day volatility, based on the Shanghai (securities) composite index, are estimated in separate empirical models. In addition, the Inter-bank overnight lending rate (IBOLR) is controlled in order to consider the effect of liquidity and investment cost.Findings and ImplicationsWe find that in the initial year (2020) of the epidemic, the new infection rate is negatively correlated to stock prices in the short-term, whereas no significant evidence existed in the long-term, regardless of model specifications. However, after the epidemic's outbreak (2021), the result depicts that new infections increased stock prices in the long-term, and depressed its inner-day volatility in the short-term, which is inconsistent with most investigations. This phenomenon may be due to the fact that investors were more concerned about the withdrawal of monetary easing and fiscal stimulus, which were introduced to fight against the epidemic's impact on economy, than the epidemic itself. This study complements the limitations of most existing studies, which just focus on the period of the epidemic's outbreak, and provides insight into macroeconomic policy making in the era of the post COVID-19 epidemic such as the structural and ordered exit of the stimulating policies, intervention in IBOLR and balance social and economic sustainability.

Impact of the Coronavirus (COVID-19) on Major Northern Hemisphere Stock Markets

“…As a result of what they observed in Figures 1 through 3, they declared that the rising daily death toll and new cases significantly impacted the Chinese stock market [10]. Jin employs the ARDL bounds test, pointing out that the epidemic reduces the Chinese stock index and increases its volatility in the short run, and as the pandemic progresses in the long run, the stock market performance gradually improves to its pre-epidemic level [11]. Japan took preventative measures shortly after the pandemic began in order to mitigate the economic fallout.However, the macroeconomic downturn and lockdown policy caused a short-term and damaging blow to the Japanese stock markets in many industries [7].…”

“…However, after Korea has passed the first wave of the most severe infection, the negative effect begins to lessen in the second and third waves of infections [12]. In the long run, governments might implement measures to counteract the epidemic's detrimental effects on financial markets in the post-epidemic age, leading to less volatile markets and higher stock prices [11]. The outbreak's impact on the Indian stock market's volatility is assessed using the GLS regressions method, which showed that its average daily returns are lower than the pre-crisis negative returns.…”

The Reasons for the Four Circuit Breakers in U.S. Stocks and Their Impact on China

“…The support to S&M enterprises will also bring more job opportunities that are vital for helping decrease the unemployment rate. In addition, the government should evaluate global trade operations in order to stimulate domestic economic growth and strike a balance between social and economic sustainability [12].…”

Exploring time-varying impact of world pandemic uncertainty on China's commodity prices using TVP-SVAR-SV model

“…The economic uncertainty caused by the COVID-19 pandemic, for example, is estimated to be much higher than by the previous pandemics ( 1 ), paralyzing the global real economic activities ( 2 , 3 ). In general, WPU leads to stagnation or recession of economic development, resulting in a decline in total demand and the depression in financial market ( 4 – 6 ). During the period of COVID-19 pandemic, the global crude oil market and financial market experienced a huge slump.…”